Switzerland: new measures to prevent bank runs
Reuters reports that Swiss financial authorities and banks are considering new rules to prevent future bank runs such as the one that took place just before the bailout of Credit Suisse earlier this year.
It was the summer of 2022 when rumours began to circulate that Credit Suisse was facing imminent bankruptcy. The announcement by Saudi National Bank (SNB), its main shareholder, that it would not inject another round of capital, was the straw that broke the camel’s back, triggering a crisis of confidence on the part of shareholders, clients and investors who decided to withdraw some 111 billion euros in funds during the last quarter of the year.
In March 2023, the Swiss National Bank (SNB) approved emergency funding of up to 57 billion euros to bolster Credit Suisse’s liquidity amid the banking crisis. The Swiss Central Bank, together with the Financial Market Supervisory Authority (FINMA) and the Swiss government, wanted to buy time to negotiate the sale of Credit Suisse to domestic rival UBS.
A few days later, UBS absorbed its banking counterpart in a rescue operation designed to prevent its demise. Even so, the speed of the collapse of Switzerland’s second-largest bank, caused by a wave of customers taking back their money, surprised European analysts and banking regulators.
“The case of Credit Suisse has clearly shown that outflows of customer deposits can now be much faster and more extensive than assumed by the existing regulations,” said Swiss National Bank president Thomas Jordan at an event in Bern on 1 November.
A general overhaul of the country’s banking regulations
Since the failures of Silicon Valley Bank (SVB), Signature Bank and Credit Suisse, financial regulators around the world have been considering how to avoid a new uncontrollable bank run. In this context, it was only a matter of time before the Swiss authorities met with the relevant institutions to discuss how to implement new regulatory measures to reduce the risk of yet another massive withdrawal of deposits.
From the article published by Reuters, it appears that the talks between the Swiss authorities and the country’s major banks (including UBS) are part of a broader review of the country’s banking rules, and could primarily target the wealthy clients of Swiss banks. This is mainly due to their bank’s specialisation in wealth management, which means that they tend to have a higher concentration of deposits than some of their commercial banking competitors.
Negotiations are at an early stage, but according to sources consulted by the UK-based news agency, among the measures being discussed is the option of staggering a large part of deposit withdrawals over longer periods. The possibility of imposing fees on certain amounts of withdrawals is also under consideration. On the other hand, a higher interest rate is to be rewarded to customers who keep their savings for a longer period.
In any case, a representative for the Finance Ministry said that the issue of mass deposit withdrawals is part of an overall assessment of the regulatory framework for banks that are too big to fail in Switzerland and that the government plans to publish a report on the outcome of the talks in spring next year.
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